GE Money has agreed to pay a settlement after failing to back up claims in advertising that people would be better off if they consolidated their loans with the company.
The money lender will pay a $60,000 donation to the Federation of Family Budgeting Services as part of a settlement reached between GE Money and the Commerce Commission.
A direct mail, print and radio advertising campaign for GE's consolidated loans in October breached the Fair Trading Act.
The company dropped about 110,000 flyers, which were shaped like a wallet, to households in areas including most South Auckland suburbs, Kelston, Massey and Glen Innes.
Advertisements in community papers contained details of a real-life GE customer who consolidated six loans into one new loan, which will be repaid over 60 months.
The advertising included statements such as "customer's monthly repayment budget reduced by $490.44" and "you'll have more certainty - and more cash left in your wallet".
But the commission's analysis of the real-life customer's loan showed interest was about $2100 higher than the total remaining interest payable on the individual loans.
"While monthly payments were initially reduced, they were substantially higher than the original loan repayments for the majority of the 60-month loan period," said Graham Gill, manager of competition for the commission. "GE was also unable to supply us with acceptable evidence that customers would be financially better off after taking out a debt consolidation loan, other than the immediate cash flow savings."
GE Money cancelled the remaining radio advertising when contacted about the campaign by the commission in October.
Mr Gill said television advertising for the consolidated loans was not investigated and "there's certainly no suggestion that [the TV advertisements] breach the Fair Trading Act".
Federation of Family Budgeting Services chief executive Raewyn Fox said mainstream banks as well as lenders such as GE Money all offered debt consolidation loans, which invariably cost the consumer more, she said.
"It doesn't matter who you do it through ... you're still paying interest on top of interest, no matter what way you look at it."
Her organisation wanted lenders to provide a summary at the beginning of contracts that clearly spelled out details such as the total cost of the loan and how much interest would be paid.
A spokeswoman for GE Money said the company recognised it had breached Fair Trading requirements.
"We are confident that the steps we have agreed with the Commerce Commission as part of the settlement will ensure this doesn't happen again."